UAE business owners head for 100% option

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DUBAI
Some of the biggest corporate deal-making in the UAE in 2020 needn’t be about mergers or acquisitions. Instead, it could involve foreign business owners trying to buy up the stakes that are now with their UAE national partners.
This was one of the reforms announced by the UAE Government this year, and applies to businesses operating within certain sectors. It could also be the most far-reaching as this would completely re-draw the corporate landscape in the country.
We expect to see a wave of new procedures and guidelines to implement the details of the Foreign Direct Investment Law, said Shahram Safai, Partner at the law firm of Afridi & Angell. “We expect for these to be completed well before the Expo 2020 Dubai. But I would like to emphasise the new law does not unconditionally grant 100% foreign ownership — it allows for up to 100 per cent ownership in certain sectors pending additional conditions and requirements at the (individual) emirate level.
As per available market information, Dubai seems to be leading the way in businesses and their owners wanting to make such a switch.
We have seen some applications being submitted to Dubai authorities — this is not the case for the other emirates, said Safai. There are still discussions among government departments to unify the activities and required percentages of foreign ownership among the emirates.
The first such deal has already been signed and delivered. In August, the chocolate maker Mars — which owns Galaxy and Snickers — confirmed it bought the 51 per cent not held by it at the “onshore” Dubai subsidiary. The value of the deal was not revealed.This was “one of the first of its kind since the UAE’s FDI Law paved the way for an increase in foreign ownership in companies incorporated “onshore” in the UAE,” a statement issued at the time said.
More businesses will want to follow the same route, now that the Mar deal has brought a precedent. According to informed sources, a leading health care operator is said to be exploring such an opportunity. And it won’t be the only one.
Based on recent client interactions, we have seen a healthy appetite among existing businesses to explore the opportunity to convert to 100 per cent ownership in “mainland UAE”, said Sachin Kerur, Head of Middle East operations at Reed Smith.
Given that the FDI Law is in harmony with UAE Companies Law and many local businesses have faced numerous challenges in the prevailing economic conditions, foreign ownership should have a positive impact on the marketplace. (It can) be a gamechanger in the Middle East as a whole.
While not directly linked, these legislative reforms have come at a good time and will attract — and promote — foreign direct investment to enhance domestic capital for accelerated growth ahead of the Expo 2020 Dubai and beyond.
But how easy — or otherwise — will it be to convince local partners, many with long-standing relations, to make an exit? Sure, the offers can be made sweet enough to convince them — but for any such transaction to get through legally, consent will be a must.
It will be difficult to implement the switch without local partner approval, said Kerur. The procedure will likely include purchasing all of the shares held by the local partner. As the FDI Law has only recently been enacted, we are awaiting further guidance to be issued setting out the detailed procedures to be followed for registering and renewing the licence of a foreign investment company.
The switch (to 100 per cent ownership) may create some friction — but we don’t anticipate for it to be unduly burdensome. However, how this will play out in practice is yet to be seen.
Whichever way it plays out, the UAE’s latest FDI Law marks a decisive break from the past. A 100 per cent break.

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